Meaning of net income

Net income, also known as net income, is the total profit or loss of the business for a given reporting period. It refers to the position of net profit in the company's income statement (i.e.) as presented at the bottom of the income statement.


The bottom line is one of the critical factors reflecting the true progress and position of the business. Indicates the increase or decrease in the wealth and profitability of the company. It can be improved by increasing revenue (Topline) or decreasing costs and expenses through various strategies and improving the efficiency of operations.

Net income is added to retained earnings. Its use can be for the payment of a dividend to the shareholders, for the redemption of shares, or to invest more in the company.

The firm/company’s investors, and analysts, believe that the net result is a critical element of the income statement and monitor its evolution from one period to another. Indicates the financial power of the company

Methods to Improve Profits

  1. 1.  Increase profits (revenues) and, at the same time, keep costs and expenses to a minimum. This will have a significant impact on earnings growth.
  2. 2.  Control of marketing costs and other fixed operating costs;
    Have an adequate strategy and maintain customer orientation.
  3. 3.  Tracking the return on investment of all expenses;
  4. 4.  Benchmarking profits with other companies in the same industry;
  5. 5.  Identification and implementation of best practices;
  6. 6.  Various cost reduction initiatives need to be implemented.
    Ongoing monitoring of Direct cost.
  7. 7.  You must have an effective supply chain team.
  8. 8.  Constantly monitor product prices. It must be competitive and solved according to market conditions.
  9. 9.  Try to reduce interest charges by obtaining credit at effective interest rates.
  10. 10.  Explore new business opportunities and expand business lines.
  11. 11.  Emphasis should be placed on product marketing, as this will have a direct impact on turnover and the bottom line.
  12. 12.  Improving production techniques and operational efficiency;
  13. 13.  Maximizing cash flow must be the focus. Continuously monitor customer receivables and collect them on time. the working capital position will improve and debts and credits can be reduced, which in turn will reduce the cost of interest.
  14. 14.  Implement process automation wherever possible to reduce labour costs.
  15. 15.  Income and expenditure must be budgeted and planned, and they must be under control.


Some of the benefits of net income are as follows.

Net profit follows the performance of the company.
Serves as the basis for financial ​planning and forecasting for the future.

It is useful for shareholders and analysts to understand financial performance.

Loans and credits can only be obtained when the bottom line is strong.

Analysis of variances from budgets and forecasts;
Benchmarking and competitor performance can be analyzed.


Some of the disadvantages of net income are as follows.

Net income does not give a complete picture of business performance because it is not cash profit. Many other elements must be taken into account in the analysis of the company’s situation.


Non-monetary expenses can sometimes skew the results.

The derivation of the net profit is carried out taking into account many assumptions.


The company’s bottom line indicates the net profit/income of the company after it has met its expenses. Net income does not indicate cash profit and its calculation is done after taking into account non-cash expenses such as
amortization and
amortization. A decrease in net income indicates that the business is at risk.

Creditors/bankers consider the bottom line to be very important because it indicates credibility and reduces the capacity of the company. Any business loan can only be obtained when the net profit is good. Positive net income indicates that the company is doing well and has a future

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